Labor – Installation, Fabrication, Construction, and ...

1 Sales and Use Tax Division Mail Station 6330 St. Paul, MN 55146-6330 Phone: Twin Cities 651-296-6181 or 1-800-657-3777 Minnesota Relay (TTY) 711 Email: Labor Installation, Fabrication, Construction, and Repair Sales Tax Fact Sheet 152 This fact sheet is intended to help you become more familiar with Minnesota tax laws and your rights and responsibilities under the laws. Nothing in this fact sheet supersedes, alters, or otherwise changes any provisions of the tax law, administrative rules, court decisions, or revenue notices. Alternative formats available upon request. 1 Stock No. 2800152, Revised August 2016 Minnesota Revenue, Labor What s New in 2016 We updated this fact sheet to combine three Labor fact sheets into one (152A, 152B, and 152C). We also updated the layout to make this fact sheet easier to read. This fact sheet describes the different kinds of Labor and how Minnesota sales and use tax applies to each.

2 It includes: Installation Labor Repair Labor Fabrication Labor Taxable services Construction Labor Installation laborInstallation Labor occurs when you set an item into posi-tion, or to connect, adjust, or program it for use. If the item being sold is taxable, charges to install it are also taxable. Installation charges are part of the sales price of the item, even if separately stated. Installation charges by a third party are a taxable service if the installation would be taxable when provided by the seller of the taxable item. Charges for installing nontaxable items are not taxable. Capital equipment If the item qualifies as capital equipment, the installation charges also qualify for the capital equipment exemption. Installation into real property Labor to install tangible personal property into real prop-erty is not taxable. See Construction Labor on page 3.

3 Installation Labor versus repair Labor Installation Labor adds something new or different to an item. Repair Labor restores an item to its original condi-tion. For example, charges to install a trailer hitch on a vehi-cle that doesn t have one is installation Labor , while charges to fix a broken trailer hitch is repair Labor . Examples A department store sells drapes and charges to install them. The drapes and the installation charge are taxable. A department store sells blinds. The blinds are installed by an independent contractor who bills the customer directly for the installation. The in-stallation charge is taxable because the blinds are taxable. A store sells and installs modular workstations. Two contracts are drawn up one for the sale of modular workstations, one for installation. Both the sale and the installation are taxable. Separate invoices do not make the installation exempt.

4 An installer is hired to rearrange the modular workstations. Moving the workstations is not taxable. A software developer sells and installs custom software. Custom software is not taxable, so the installation charges are also not taxable. A software developer sells, and installs, custom software and computer equipment. If there is one installation charge for both the taxable hard-ware and the exempt custom software, the entire charge is taxable. If there is a separate installa-tion charge for each, only installation of the hardware is taxable. Labor to install indoor or outdoor decorations, provided by the seller, is taxable (holiday deco-rating, stringing lights, hanging wreaths or gar-lands, home staging). However, setting up deco-rations owned by the customer is not taxable. Minnesota Revenue, Labor 2 Fabrication laborFabrication Labor makes or creates a product or alters an existing product into a new or changed product.

5 Fabrica-tion Labor is taxable, even if the customer provides the materials for the products that will be created or altered. Fabrication Labor includes, but is not limited to: Assembling Grinding Boring Heating Combining Printing Cooling Sawing Cutting Sewing Dehydrating Taxable fabrication Labor Bending, cutting, and drilling holes in steel, alu-minum, plastic, glass, or other materials Bookbinding Collating and assembling by stapling or a similar process to join items together Converting a vehicle into a stretch limousine Crushing and screening gravel and aggregates Cutting and milling and custom sawing wood Drilling holes in bowling balls Electroplating or heat treating Firing ceramics or china Making curtains, drapes, pillows, slipcovers, rugs, towels, quilts, or other household furnish-ings Laminating identification cards Matting and framing artwork Painting of tangible items Photocopying and printing Photography and videotaping Pipe cutting or threading Producing sound recordings or motion pictures Taxidermy Welding additions onto tangible personal prop-erty Fabrication Labor for resale Fabrication Labor may be purchased exempt if the pur-chaser gives the seller a completed Form ST3, Certificate of Exemption.

6 Example A furniture manufacturer hires a lumber yard to custom saw some lumber. The manufacturer uses the sawed lumber to make tables that will be sold to retail stores. The sawing (fabrication Labor ) may be purchased exempt if the manufacturer gives the lumber yard a completed Form ST3, Certificate of Exemption. Engraving Engraving that is billed along with or included in the sales price of a product is taxable. If the customer pro-vides the item, the engraving is not laborLabor to permanently attach an item to real property is construction Labor , which is not taxable because it is an improvement to real property. Usually, the items stay with the building when it is sold to another party. Examples include: Carpet Gutters Deck Hot water heater Doors Roof Furnace Windows Garage door Repair Labor to repair items attached to real property is con-struction Labor .

7 For more information, see Fact Sheet 128, Contractors. Repair Labor Repair Labor restores an item so it can be used for its origi-nal purpose. Repair Labor is not taxable as long as the Labor charges are separately stated from parts or materials on the customer bill or invoice. Examples of nontaxable repair Labor : Changing a safe combination or lock tumblers by a locksmith Removing dents from a vehicle Repairing an engine Replacing a heat element in an appliance Note: From July 1, 2013 March 31, 2014, repair and maintenance Labor for businesses was taxable. Listing repair Labor separately List parts or materials separately from any repair Labor charges. Charge sales tax on the parts or materials. What if parts and Labor are not listed separately? When repair Labor and taxable parts are not listed sepa-rately on the customer s bill or invoice, the total charge may be taxable.

8 Continued 3 Minnesota Revenue, Labor How does the parts cost compare to the total charge? Is the total charge taxable? Insignificant No. The repairer must pay sales or use tax on the cost of the taxable part used in the repair. Significant Yes. The repairer must charge sales tax on the total charge. Examples A repairer charges $400 to reupholster a sofa. This includes $200 materials and $200 Labor . If the material and Labor charges are combined, the entire $400 is taxable. (The cost of the taxable ma-terials is a significant part of the total charge.) If the Labor and materials costs are listed separately on the invoice, only the $200 materials cost is tax-able. Note: If the customer provides the material for the sofa, the charge for the repair Labor is not taxable. A jeweler uses a $1 spring to repair a watch and charges the customer $10 for the repair.

9 If the part and Labor charges are combined, the $10 is not taxable. (The cost of the spring is insignifi-cant.) The jeweler must pay sales or use tax on their cost of the spring. If the part and Labor charges are listed separately on the invoice, the charge for the spring is taxable. Mileage or Travel Charges Mileage and travel charges are not taxable when sepa-rately stated on the invoice to the customer when they are directly related to the nontaxable repair charges. Taxable services Certain services are taxable. Many of these services have Labor components. For more information, see the following fact sheets: 112, Building Cleaning and Maintenance 113, Motor Vehicle Towing, Washing, Rust-proofing 114, Detective and Security Services 120, Laundry and Cleaning Services 121A, Lawn and Garden Maintenance, Tree and Shrub Services 122, Pet Grooming, Boarding, and Care Ser-vices 162, Massages 166, Parking Services Legal References Minnesota Statutes : subd.

10 3(c), Definitions subd. 7, Sales price subd. 38, Bundled transactions Revenue Notices 06-11, Sales Price Labor Charges 16-03, Optional Warranty and Maintenance Contracts on Equipment Other Fact Sheets 128, Contractors 131A, Motor Vehicle Auto Body Repair and Service 131B, Motor Vehicle Mechanical Repair and Service 146, Use Tax for Businesses 156, Use Tax for Individuals 164, Local Sales and Use Taxes